A windfall gain is an unusually high or abundant

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...

, that is sudden and/or unexpected.

Types

Examples of windfall gains include, but are not limited to: *Gains from

demutualization Demutualization is the process by which a customer-owned mutual organization (''mutual'') or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, member ...

- this example can lead to especially large windfall gains. A study in 1999 into the potential demutualization of the

John Lewis Partnership The John Lewis Partnership plc (JLP) is a British company which operates John Lewis & Partners department stores, Waitrose & Partners supermarkets, its banking and financial services, and other retail-related activities. The privately-held pu ...

predicted that partners would receive upwards of £100,000 in windfall gains if the company were to be floated on the stock market. *Unexpected

inheritance Inheritance is the practice of receiving private property, titles, debts, entitlements, privileges, rights, and obligations upon the death of an individual. The rules of inheritance differ among societies and have changed over time. Officia ...

or other large gift from another *

Sweepstake A sweepstake is a type of contest where a prize or prizes may be awarded to a winner or winners. Sweepstakes began as a form of lottery that were tied to products sold. In response, the FCC and FTC refined U.S. broadcasting laws (creating the ...

s winnings *Winning a lottery or success in another form of

gambling Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three el ...

*Returns on investments *Proceeds or profit from a large sale *

Game show A game show is a genre of broadcast viewing entertainment (radio, television, internet, stage or other) where contestants compete for a reward. These programs can either be participatory or demonstrative and are typically directed by a host, ...

, or other contest winnings *Employment payroll bonus *

Natural resources Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. ...

* Foreign aid *Proceeds from an

insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

claim *Settlement from a lawsuit *Discoveries from

treasure hunting Treasure hunter is the physical search for treasure. For example, treasure hunters try to find sunken shipwrecks and retrieve artifacts with market value. This industry is generally fueled by the market for antiquities. The practice of treasure ...

Uses

What people do with windfall gains is subject to much debate. While they differ from one account to the next, most economists hypothesize that the majority of the gains are saved, due to the

Permanent Income Hypothesis The permanent income hypothesis (PIH) is a model in the field of economics to explain the formation of consumption patterns. It suggests consumption patterns are formed from future expectations and consumption smoothing. The theory was develope ...

Windfall profits

Windfall profits are a type of windfall gain. They can occur due to unforeseen circumstances in a product's market, such as unexpected demand or government regulation. Since the profits were unforeseen, some legislators believe that taxing them at a higher rate, or confiscating them outright, should not hurt the company. This type of taxation is known as a windfall profits tax. Regardless of taxation, some businesses view windfall gains as a liability, as it creates difficulties when it comes to managing cash flow and investor expectations. It may also indicate a problem with the company's strategy and the ability of executives to forecast the market. That said, windfalls also present a substantial opportunity for reinvestment and helps buffer the company's bottom line.

External links

References

Household income {{income-stub